The GIPS standards for constructing composites mandate the timely and consistent inclusion of new portfolios once they are managed. Firms must create, document, and consistently follow a policy for adding new portfolios to the relevant composites promptly. In many cases,…

Defining Discretion Let’s delve into the concept of defining discretion in managing portfolios. These restrictions on the investment process can vary widely, and they should be thoroughly outlined in the client’s Investment Policy Statement (IPS). While they serve as crucial…

Composites are collections of different portfolios grouped together for tracking and measurement purposes. When dealing with composites, it’s essential to follow GIPS® standards diligently because they can potentially distort clients’ perceptions of performance and returns. According to the GIPS standards,…

A firm may opt to report Money-Weighted Returns (MWR) instead of Time-Weighted Returns (TWR) if they have control over external cash flows and meet one of the following conditions: The portfolios have a closed-end, fixed life, or fixed commitment structure….

Time weighted return (“TWR”) is a method of calculating portfolio returns via linking sub-period returns and adjusting for the effect of large external cash flows. Portfolios using TWR must be valued monthly. Portfolios must also be valued at the time…

The Global Investment Performance Standards (GIPS)® are designed to promote honesty and accuracy in reporting investment performance. GIPS aims to eliminate deceptive practices in investment reporting and presentation, including: Misrepresenting expertise: Presenting returns of top portfolios as if they represent…

Sample Free Structure $$ \begin{array}{c|c} \textbf{Standard fee} & 0.55\% \\ \hline \textbf{Base fee} & 0.25\% \\ \hline \textbf{Sharing} & 16\% \\ \hline \textbf{Breakeven active return} & 2.00\% + \\ \hline \textbf{Maximum annual fee} & 0.69\% \end{array} $$ $$ \textbf{Sample Fee…

These fees are determined by portfolio returns and are intended to reward managers who create value. Performance-based fees are structured in one of three basic ways: Symmetrical structure in which the manager is fully exposed to both the downside and…

Prospectuses, private placement memorandums, and/or limited partnership agreements all contain the terms of the investment management services. Allocators must make sure the terms involving liquidity and management fees all make sense, given the portfolio goals. Liquidity refers to the ease…

An investment vehicle refers to the type of account(s) used to hold an individual's investments or the ownership structure. There are two primary options: commingled or pooled investment vehicles and separately managed accounts (SMAs). Each has its own unique set…